What Are the Two Primary Ways to Pay the Taxes You Owe?

Taxes are a fundamental obligation for individuals, determined by income earned throughout the year. Taxpayers generally utilize two main approaches to satisfy their obligations.

Payments Made Through the Year

Many individuals fulfill their tax obligations incrementally throughout the year, primarily through withholding and estimated tax payments. For most employees, income taxes are automatically withheld from wages, salaries, and other employment income. Employers manage this process based on information provided by the employee on Form W-4, Employee’s Withholding Certificate. The W-4 form allows individuals to adjust the amount of tax withheld from each paycheck, helping to align payments with their actual tax liability.

Estimated taxes are typically paid by individuals who earn income not subject to withholding, such as self-employed individuals, independent contractors, or those with substantial investment income like dividends or interest. These taxpayers are generally required to pay their income tax liability in installments throughout the year, usually on a quarterly basis. The purpose of estimated payments is to ensure that tax obligations are met as income is earned, preventing underpayment penalties.

Direct Payments When Filing

The second primary method of paying taxes involves making a direct payment for any remaining balance due when the annual tax return is filed. This payment covers any tax liability that was not satisfied through previous withholding or estimated tax payments throughout the year. Several convenient options are available for taxpayers to submit this final payment directly to the Internal Revenue Service (IRS).

One common method is IRS Direct Pay, which allows secure, free payments directly from a checking or savings account. This service does not require prior registration and confirms the payment immediately. Alternatively, taxpayers can use a debit card, credit card, or digital wallet through third-party payment processors. These methods typically involve a processing fee.

The Electronic Federal Tax Payment System (EFTPS) is another free service provided by the U.S. Department of the Treasury, allowing individuals to pay federal taxes electronically. EFTPS is often utilized by businesses but is also available to individuals, offering the ability to schedule payments up to 365 days in advance. For those preferring traditional methods, payments can be made by check or money order mailed to the IRS. When sending a payment by mail, make the check or money order payable to the “U.S. Treasury” and include:

• The taxpayer’s name
• Address
• Phone number
• Social Security number
• The tax year
• The related tax form or notice number